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11. A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected return (%) Beta Residual

11. A portfolio manager summarizes the input from the macro and micro forecasters in the following table:

Micro Forecasts

Asset

Expected return (%)

Beta

Residual Standard Deviation (%)

Stock A

25

1.2

56

Stock B

19

1.6

70

Stock C

16

0.5

61

Stock D

13

1.0

53

Macro Forecast

Asset

Expected Return (%)

Standard Deviation (%)

T-Bills

7

0

Passive Equity Portfolio

15

21

a. Calculate expected excess returns, alpha values, and residual variances for these stocks. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values" to 1 decimal place.Omit the "%" sign in your response.)

Stock A

Stock B

Stock C

Stock D

Excess returns

18%

12%

9%

6%

Alpha values

8.4%

-0.8%

5%

-2%

Residual variances

3136

4900

3721

2809

b. Compute the proportion in the optimal risky portfolio. (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

Proportion _______??

c. What is Sharpes measure for the optimal portfolio and how much of it is contributed by the active portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Sharpe's measure _______??

Active portfolio ________??

d. What should be the exact makeup of the complete portfolio for an investor with a coefficient of risk aversion of 3.1? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the % sign in your response.)

Final Positions

Bills ____%??

M _____%??

A _____%??

B _____%??

C _____%??

D _____%??

Total _____%??

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